Tax Tips
Sole proprietorships, partnerships and LLCs

By Howard Abrams, PBS Tax & Bookkeeping

Q.  How would I go about joining my brother in his LLC? Both of us have our own EIN numbers, but my brother started the LLC before I became an owner-operator.

A.  It appears you want to have a partnership with your brother to operate a trucking business. You can join your brother’s limited liability corporation, or LLC, only by his consent and you would become a member of the LLC. Your brother’s LLC should have an operating agreement, which would indicate the method of becoming a member. If there is not an agreement, we suggest the LLC get one.

You and your brother would need to agree on what you would invest into his LLC and what percentage interest of ownership you would receive in the newly formed partnership.

The operating agreement should state how the profits are to be divided, and any guaranteed payments. We understand both of you have an employer identification number (EIN), but if you join your brother’s LLC the LLC would continue using its EIN. You would not be using your EIN.

Q. If we merge under my brother’s LLC, how would the taxes be done? As a business unit or as individual tax returns?

A. The taxes of the new LLC would be on a Form 1065, a partnership income tax return. Each of you would receive a Schedule K-1 (Form 1065) showing your distributive share of income. Each of you would then report the information from the Schedule K-1 (Form 1065) on your individual income tax returns. The LLC also affords you the right to choose to be taxed as a corporation (S or C) for possible tax savings.

Q. Do I still keep my own EIN number? I’m lost with this situation.

A. You do not need your EIN. The LLC has its own EIN, and your Social Security number will appear on your Schedule K-1 (Form 1065).

Q. Or should I just start my own LLC? What would be easier?

A. You have one of three options:

  1. Start your LLC and become a member of your brother’s LLC.
  2. Join your brother’s LLC as an individual.
  3. Form your own LLC and operate as a sole proprietor (not joining your brother’s LLC).

It would be more expensive for you to form your own LLC and then become a member of your brother’s LLC as opposed to joining your brother’s LLC as an individual. However, there are advantages and disadvantages of operating as a sole proprietor versus as a partner.

As a sole proprietor you make all the decisions. You are the responsible party and you rely on yourself. You do not need to get the approval of others to make business decisions; however, it’s tough to take off work because there is no one to help you. A sole proprietorship is the easiest entity to operate and the most cost effective.

As a partner in a partnership, you have to agree with your partner on important decisions. But two heads are usually better than one. Partnerships are more sophisticated and costly to operate, but they offer the possibility of handling more growth. If you are sick or want vacations, your partner may be able to cover for you. 

We cannot and do not express any opinion as to any amount of liability protection needed by you or your brother. We highly suggest conferring with an attorney as to any kind of liability protection. LL


This article is written by PBS Tax & Bookkeeping Service, a company that has been providing income tax and bookkeeping services to the trucking industry for more than a quarter-century. If you would like further information, please contact PBS at 800-697-5153 or visit their website at pbstax.com.

This column is the opinion of the writer and does not necessarily reflect the opinions of Land Line Magazine or its publisher. Please remember that everyone’s financial situation is different. This article does not give and is not intended to give specific accounting and/or tax advice. Please consult with your own tax or accounting professional.